Gold Has Biggest Weekly Decline Since July; Silver Tumbles
By Pham-Duy Nguyen
March 2 (Bloomberg) -- Gold in New York had the biggest weekly decline since July as investors sold the metal to cover losses in equity markets. Silver tumbled 12 percent this week.
Gold futures in Japan dropped the maximum allowed by the Tokyo Commodity Exchange as the Nikkei 225 Stock Average had its biggest weekly decline since June. In New York, the metal slumped 6.2 percent this week following the sell-off in Chinese shares on Feb. 27 that triggered a loss of more than $1.5 trillion in global equity values.
``People are getting hurt in their stock positions, and the only place where they have profits in the past six months is gold, and they're going to take it,'' said Dennis Gartman, trader, economist and editor of Suffolk, Virginia-based Gartman Letter. He sold half of his gold holdings yesterday.
Gold futures for April delivery fell $21, or 3.2 percent, to $644.10 an ounce on the Comex division of the New York Mercantile Exchange. The metal still has gained 13 percent in the past 12 months.
Silver for May delivery plunged 63 cents, or 4.6 percent, to $12.96 an ounce. The weekly percentage drop was the most since May. The metal still has climbed 28 percent in the past 12 months.
A futures contract is an obligation to buy or sell a commodity at a set price for delivery by a specific date.
Concern over a global economic slowdown helped sparked a decline in stocks, which headed for the worst week since August 2004. Before today, the Standard & Poor 500 Index and the Dow Jones Industrial Average had fallen 3.3 percent this week, while the Nasdaq Composite Index, which gets 40 percent of its value from computer shares, dropped 4.4 percent.
`Victim of Own Success'
``The apparent quest for liquidity among global investors has made gold a victim of its own recent success,'' Jon Nadler, an investment-products analyst at Montreal-based Kitco Minerals & Metals Co., said in an e-mail.
Before this week, gold climbed for seven weeks in a row, gaining more than $80 from the year's low of $603 on Jan. 5.
Gold has more than doubled in the past five years, outpacing the S&P 500 and the benchmark 10-year U.S. Treasuries, which have returned about 25 percent for investors.
``Gold is very liquid, so inevitably it gets sold when people need cash to meet margin calls or hedge funds need to repay debt to reduce their leverage,'' said James Turk, founder of GoldMoney.com, which had $186 million worth of gold and silver in storage for investors at the end of January.
Silver's higher returns in the past year make the metal more vulnerable to declines when investors need to raise money, analysts said.
`Going to Get Hurt'
``The fact that the gold-to-silver ratio has moved so markedly in gold's favor argues that weakness in the precious metals generally may be far more protracted and far more serious than one might otherwise believe,'' Gartman of the Gartman Letter said. ``If you worry about a slowdown, silver's going to get hurt more because it's more of an industrial metal.''
Mining stocks and the StreetTracks Gold Trust, the exchange-traded fund, or ETF, backed by physical gold, also declined. The Philadelphia Stock Exchange Gold & Silver Index has tumbled 9.3 percent this week to 131.88. The StreetTracks fund, which on Feb. 27 reached a record $10.7 billion, dropped 5.9 percent.
Barclays iShares Silver Trust, an ETF backed by physical silver, dropped 12 percent to $128.42, marking the biggest decline since mid-May, when the fund first began trading.
Rebound?
Gold may rebound after equity markets level off, some analysts said. The dollar might slump on concern a U.S. recession is possible, renewing the precious metal's attraction as an alternative investment. Higher fuel prices also may revive gold's appeal as a hedge against inflation.
``Any gold investor who looks at his statement sees he is still up significantly in February, let alone for the year,'' said Adrian Day, president of Annapolis, Maryland-based Adrian Day's Asset Management, which has $113 million in assets. Day predicted last week that prices would fall. He sold holdings in some smaller mining companies this week.
``Gold investors are much more sanguine now than in the past, sensing new highs later this year,'' Day said.
To contact the reporter on this story: Pham-Duy Nguyen in Seattle at pnguyen@bloomberg.net .
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